Startups usually take many years to exit. So it is important to figure out up front whether what you're working on is a fad or a real market. You don't want everything to fall apart two years in because a fad passes.
Even if you plan to sell at the earliest opportunity, you won't be able to unless a buyer is convinced it is in their long-term strategy to buy you. And so then you're back to pursuing a real market.
A simple strategy is to choose something already big because there is often more room for success within a big market. That is, if you're a scrappy founder you will probably be able to figure out *something* that works within this huge market. That's what we did in my last company. Classmates.com was making a lot of money so we found a niche in their market and ultimately got bought by them.
A bit more complicated is to work within a big market and concentrate on where you think it is headed. That's what I'm doing now with DuckDuckGo.
The hardest strategy (though often the most lucrative) is picking a smallish market now that is imminently exploding, such that you can standout in an area everyone is about to be talking about all the time. Some proven examples here are Netscape, Groupon, and Zynga; some potential examples are Hunch and foursquare.
Another way to look at this whole issue is what long term market premise(s) is your startup betting on? For DuckDuckGo, there are a bunch:
- Structured content often packaged through great APIs are on the rise and can be integrated intelligently to produce great search results.
- Privacy will become an increasing issue and some non-negligible percentage of people will value their privacy being protected by their search engine (including myself!).
- Universal search, ads and complementary products have cluttered results too much and some non-negligible percentage of people would prefer something less cluttered.
- Search result pages don't really make that much inherent sense, and there is an opportunity to make them more readable and understandable.
- SEO spam is on the increase and have made searching for stuff on the Internet more annoying over time.
- The Web is increasingly becoming a market for attention, and so becoming the start page is a great position to be.
I'm 3 years in now, and these have generally been good bets so far. All but the privacy one I had from the beginning. I picked it up from users, and started thinking about it really seriously at the beginning of last year. Now it is also a personal cause, but I definitely think that there is a long-arc of privacy consciousness that is on the rise.
What is your startup betting on? Are you chasing a fad or a market? Is it a dying market or a growing one or an exploding one?